by Catherine Way


Anyone looking to start making money from real estate investing, from either renting their first property, or even just flipping houses, has seen the phrase ‘hard money loans’ floating around the internet.

Even with all the technology, forums and search engines at our disposal learning more about hard money loans, and how they can help budding real estate investors, can be harder than ever. Sorting through rants, raves, and everything in between is time consuming, and anyone working in real estate knows, that time is money.

In order to use hard money loans for your advantage in real estate you need to know how investors can come out on top by using them, and the biggest takeaway being, what’s the risk to you as an investor?

Hard money loans are here to stay, and can be essential tool for real estate investors to build their empire.

Thankfully whether you are a first timer, or even the seasoned investors, you can learn all there is to know about hard money loans below.

What Is A Hard Money Loan?

Hard Money loans are asset-based loans, secured in real estate, with most hard money loan value being tied to the after repair value of the property.

While traditional loans base their value on the current worth of the house, hard money loans, in this case for real estate investing, are secured by the future value of the property. This is determined by calculating the After repair value, using comparable properties in the area, and adjusting for the market.

Generally these hard money loans are used to buy real estate, make repairs, in order to improve the value of the home to then either rent or sell for a profit.

Real estate investors use hard money loans to not only buy properties but make crucial repairs needed to either sell or rent properties. Hard money loans can be extremely useful to purchase foreclosures, or undervalued properties in need of repairs.

Hard money loans are secured using the future real estate values, or determined by After Repair Value, or ARV. To calculate this, they look at the current properties worth, estimated repairs, and calculate to find the properties after repair value.

Hard money loans don’t require credit scores or histories, because they are dependent on the value of the property, and secured by the real estate itself. Fundings for hard money loans are fast and easy, with most approvals for loans happening same day. In fact some applications for hard money loans can be funded in as little as 2 days after the application.

Depending on your lender, you can have a hard money loan that is only secured in real estate, so there is no need to risk credit or personal assets to secure the loan.

Hard Money loans are a great way for real estate investors to purchase properties with minimal risk, and hassle. Hard money loans also make it easy for first time investors to do so with minimal risk.

Pros Of Hard Money Loans

Many real estate investors depend on hard money loans to quickly secure properties and fund their repairs.

For those real estate investors, or first time investors looking to use hard money loans, the benefits of using them can be summed up with low-risk investing with a higher returns.

Some benefits of hard money loans are:

  •  No Credit Checks
  •  Easy Approval For undervalued properties or properties in need of repairs
  •  Funding for purchase and repairs
  •  Based On After Repair Value
  •  Minimal Paperwork
  •  Hassle free applications

For those with bad credit histories, or even those not wanting to risk their personal assets, hard money loans make it easy to start investing with minimal risks to the investors. Due to hard money loans being secured in the real estate property itself, depending on your lender, you minimize the risk of a deal not performing as well, and won’t take the loss to your own assets.

Applying for a hard money loan is fast, and approval rates happen more often, and quicker than a traditional bank loan. Hard money loans are not dependent on the credit histories or ratings of the borrowers, and as long as real estate property is up to par, getting approved can be quick and easy. The application process can be completely virtual for a hard money loan, and some investors getting funded in under 2 days. To complete an online application for a hard money loan all you need is the property address, purchase price of that property, estimated repairs, and photos. Using these, the lender can determine the current state of the property and the after repair value.

Some hard money lenders will even guide you on the best repairs to make to maximize your return on investment.

Cons Of Hard Money Loans

Not all loans can be perfect, and while hard money loans do help open the doors for real estate investors, they are not for everyone.

Hard money loans are ideal for those looking to start investing, and should not be used as a primary loan for personal assets.

The main disadvantages of hard money loans are:

  •  Short Loan Terms
  •  Higher Rates
  •  High monthly payments

Hard money loans are designed to be short term loans for the purpose of purchasing, improving and then selling or renting properties. Hard money loans loan terms tend to be anywhere between 6 months to 2 years at the longest. Depending on the investment, and the loan, this gives investors time to purchase, improve and pay off the loan relatively quickly, and to start profiting from the investment faster. Depending on the kind of loan you have, you could possibly extend the loan, but most investors find it easy to work within this time frame.

Interest rates for hard money loans can range from 10 – 18% depending on the specific lender and the perceived risk of the loan. This is because of the higher risk to the lender, and securing the loan value in the After repair value of the property. In the event of a foreclosure, the lender would seize the real estate investment, to recuperate the loss. While foreclosures, can and do happen, most lenders try to avoid them as often as they can, and will work on negotiating the loan to prevent a foreclosure from happen.

While using a hard money loan is not entirely risk free, many real estate investors find them beneficial to quickly secure their properties, and fund their investments with minimal risks to themselves. Hard Money loans make real estate investing not only faster, but more accessible to anyone looking to start investing. House flippers, landlords, and even wholesalers can use hard money loans to quickly secure properties, fnd repairs, and start making money from real estate investing.

How To Use A Hard Money Loan

“Hard Money loans make it easier than ever for house flippers or landlords to purchase properties, and make the repairs they need to maximize their profits. With hard money loans, you eliminate the risks of using all your own capital on a deal, but also will still see the rewards from taking the risk.” Loren Howard Prime Plus Mortgages – Phoenix Hard Money Lender

The three most common types of hard money loans are the following:

  1. Fix and Flip Loans
  2. Home Rehab Loans
  3. Bridge Loans

Hard money loans are used in a large variety of real estate investment projects, but the common loans can be broken up into the groups listed above.

Fix and Flip loans are crafted to help house flippers with their projects. Fix and flip loans are used to purchase undervalued properties, fund repairs and ‘flip’ them for a profit.

These types of hard money loans make it to fund the investment from start to finish. This is the most common type of hard money loan.

Home Rehab loans are intended to fund the repairs of a property to either upgrade it for rental purposes, or too sell for a profit. If someone has a rental unit that they wish to improve on in order to charge higher rents, a home rehab loan would be a easy way to do this with minimal risk. Home rehab can also be used to improve non-owner occupied properties to flip for a property.

Bridge loans, are used to fill funding gaps in order to prevent foreclosures. Ideally, bridge loans are used to pay off existing gaps in payments and then be refinanced into a longer-term loan.

Other Investors will use bridge loans to fund a home rehab project before listing their home, and others may use them to help refinance their current loan. Bridge loans can supply immediate fundings and can be used for a variety of reasons in real estate investing, You can learn more about bridge loans here.

No matter how you use a hard money loan, having fast access to capital, and at minimal risk to personal assets is a huge advantage for many real estate investors.


Hard Money loans make real estate investing not only faster, but more accessible to anyone looking to start investing. House flippers, landlords, and even wholesalers can use hard money loans to quickly secure properties, fund repairs, and start making money from real estate investing.

  • What is a hard money loan: A hard money loan is a loan secured by real estate, and is determined by the property’s after repair value.
  • Pros of Hard Money Loans: No Credit checks, quick application, and fast fundings to acquire and repair properties quickly and make more money from them.
  • Cons of Hard Money: hard money loans have higher interest rates than traditional loans, and short terms, this leads to higher monthly payments that are not for everyone.
  • How to use a hard money loan: You can use hard money loans for any type of real estate investment, but the most common types of hard money loans are used for: fix and flips, home rehabs, and even bridge loans.

Have you ever used a hard money loan before?


Catherine Way graduated from Michigan State University with her Bachelor’s of Advertising with a specialization in Graphic Design. She works as a freelance content creator for many facets of real estate, including commercial, residential, and mortgage industries. She spends her free time finding new ways to talk to people, through writing, designing, dancing, and more. You can see her latest creations here.


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